A surplus occurs at a price above the market equilibrium price, Pe (or P2 in the picture below). At such a price, suppliers are willing to sell more of the good or service than consumers are willing to buy. Therefore, quantity supplied (Qs) is greater than quantity demanded (Qd). A surplus generally leads to a lowering of the price of the good or service so that the market is cleared at the equilibrium price and equilibrium quantity.
In the diagram below, a price of P1 has a surplus of Q3 - Q1. The general rule of thumb is that the quantity of the Surplus = Qs - Qd.
A surplus occurs when there is an excess in supply (quantity supplied exceeds quantity demanded). A surplus will usually cause producers to lower the price of a product until it reaches the market equilibrium.
SHORTAGE
A shortage occurs at a price below the market equilibrium price, Pe (or P2 in the picture below). At such a price, consumers are willing to buy more of a good or service than suppliers are willing to produce and sell. Therefore, quantity demanded (Qd) is greater than quantity supplied (Qs). A shortage generally leads to a raising of the price of the good or service so that the market is cleared at the equilibrium price and equilibrium quantity.
In the diagram below, a Price of P1 has a shortage of Q3 - Q1. Generally, the quantity of the Shortage = Qd - Qs.
A shortage occurs when there in an excess in demand (quantity demanded exceeds quanity supplied)
A good example of a shortage comes from the California electricity crisis, "a situation where politicians attempted the old unwinnable Soviet-style game of manipulating free markets" (http://www.zealllc.com/2001/caecon.htm). The California government attempted to set a price cap on electricity so that it was available to everyone. However, the problem with setting these caps was that the supply of electricity wasn't great enough to address the wants of everyone in California. This price was low enough for demand to exceed supply, thus creating a government-induced shortage of electricity. When there is a shortage, normally the market tends to increase the price of that good until supply increases and demand decreases to the point where supply is equal to demand. However, as the article explains, the imposed price caps kept the prices too low for the market to balance itself out, thus continuing the shortage of electricity.
Surplus vs. Shortage AP MICE
SURPLUS
A surplus occurs at a price above the market equilibrium price, Pe (or P2 in the picture below). At such a price, suppliers are willing to sell more of the good or service than consumers are willing to buy. Therefore, quantity supplied (Qs) is greater than quantity demanded (Qd). A surplus generally leads to a lowering of the price of the good or service so that the market is cleared at the equilibrium price and equilibrium quantity.In the diagram below, a price of P1 has a surplus of Q3 - Q1. The general rule of thumb is that the quantity of the Surplus = Qs - Qd.
SHORTAGE
A shortage occurs at a price below the market equilibrium price, Pe (or P2 in the picture below). At such a price, consumers are willing to buy more of a good or service than suppliers are willing to produce and sell. Therefore, quantity demanded (Qd) is greater than quantity supplied (Qs). A shortage generally leads to a raising of the price of the good or service so that the market is cleared at the equilibrium price and equilibrium quantity.In the diagram below, a Price of P1 has a shortage of Q3 - Q1. Generally, the quantity of the Shortage = Qd - Qs.
A good example of a shortage comes from the California electricity crisis, "a situation where politicians attempted the old unwinnable Soviet-style game of manipulating free markets" (http://www.zealllc.com/2001/caecon.htm). The California government attempted to set a price cap on electricity so that it was available to everyone. However, the problem with setting these caps was that the supply of electricity wasn't great enough to address the wants of everyone in California. This price was low enough for demand to exceed supply, thus creating a government-induced shortage of electricity. When there is a shortage, normally the market tends to increase the price of that good until supply increases and demand decreases to the point where supply is equal to demand. However, as the article explains, the imposed price caps kept the prices too low for the market to balance itself out, thus continuing the shortage of electricity.